Hotly anticipated comments from Fed chairman Powell yesterday ultimately presented markets with something of a curveball. On the back of the recent uptick in US data and with several Fed members voicing hawkish opinions, traders had been expecting Powell to double down on the hawkish message offered at the last FOMC meeting, confirming the likelihood of a further Fed rate hike before the central bank holds rates steady, at elevated levels, for an extended period.

Bond Yields Doing the Fed’s Job

However, while Powell acknowledged the resilience in the US economy and note that further tightening might still be necessary, he indicated that strength in the bond market might lessen the need to act further. With yields surging causing a tightening of financial conditions, Powell noted that there was less pressure on the Fed to hike rates further. While Powell in no way ruled out further rate hikes, the market appears to have taken these comments as a signal that the Fe dis likely done hiking with market pricing for a further hike in the December – March period dropping sharply. Despite the shift, USD remains well supported for now on continued safe-haven flows as traders monitor developments in the Middle East.

Technical Views

DXY

The rally in the Dollar Index has stalled for now into the 107.58 level. With this region holding as resistance, focus turns to support at the 104.95 level as the next reference. This will be a key test area with bulls needing to defend this support zone to keep the focus on further prices. While this area holds, 109.18 is the longer-run focus for bulls. 

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